The Bubble Bursts: 2023 Forecast

The Credit Strategist - January 2023

The world is trying to recover from the biggest monetary bubble in modern history.  This is a recovery effort rather than a reversal or unwinding because none of the tens of trillions of dollars of debt created since the GFC is being reduced in any fashion.  Instead, that debt is rapidly increasing in a vast Ponzi game and weighing heavily on the global economy, diverting untold amounts of financial and intellectual capital from productive and life-enhancing activities.  Debt begets more debt due to deliberate policy choices as well as the foreseeable consequences of past policy errors.  These policy decisions culminated in the post-GFC period and reached a crescendo during the pandemic when ill-advised decisions to flood economies with free money to compensate for even more ill-advised decisions to shut down economies pushed the global financial system beyond its limits, triggering an explosion in inflation.  Panicky central banks unleashed a flood of free money that wildly inflated financial asset prices and effectively financialized every asset on the planet, leaving a dangerously over-leveraged global economy in their wake.  And now they have no realistic plans to repair their errors.

The impact of these policies wasn’t confined to the financial world.  Free money altered – and diminished in quality - human interactions. By devaluing money by printing far too much of it, policymakers accelerated the process of financialization.  In combination with digital media, low-cost money monetized human relationships by rendering them increasingly transactional rather than relational.  While this trend was at work even before the GFC, it accelerated since then.  ZIRP and QE affected how people behave, how they talk, how they think, and how they treat each other.  Perhaps it was a historical accident or perhaps not, but the coincident explosion of monetary flatulence and social media created a powerful phenomenon that altered – and diminished the quality of – human life.  It is too early to say whether interventional monetary policy and social media are reaching their peak (most likely this is just a temporary pause), but their upward trajectory is running into serious headwinds.  The question is whether those headwinds are merely temporary obstacles or genuine limits. Time will tell.